A study that will facilitate in knowing whether it is lucrative or not to invest in Tata Steel .
An extensive report on investment analysis which consist of both fundamental and technical analysis.
Chapter 2.ppt of macroeconomics by mankiw 9th edition
Investment analysis of TATA STEEL
1. 1
“A study on Investment analysis of TATA STEEL”
A
Field project
In partial fulfillment of
Integrated Master of Business Administration
By
Pradeep Kumar
CUJ/I/2012/IMBA/21, Sem. 4th
Centre for Business Administration
Central University of Jharkhand, Ranchi
Under the supervision of
Mr. Vijay Kumar Sharma
Asst. Professor
Centre for Business Administration
2. 2
DECLARATION FROM STUDENT
I hereby declare that the work incorporated in this report entitled “A study of Investment
analysis on TATA STEEL” is the outcome of original study undertaken by me Carried out
under the guidance of Mr. Vijay Kumar Sharma, Asst. Professor, Central University Of
Jharkhand.
I further declare that the matter in this report has not been submitted by me as a whole or in part
at any other University or Institution for the award of any Degree or Diploma.
Date- ----------------------
Place- (Pradeep Kumar)
Integrated MBA
CUJ/I/2012/IMBA/21
Centre for Business Administration
3. 3
CERTIFICATE FROM CENTRE
This is to certify that the contents of this thesis entitled “A study on Investment analysis of
TATA STEEL” by Pradeep Kumar (21) 4th
Sem. submitted to Center for Business
Administration (CUJ) for the Award of Degree Master of Business Administration (MBA) is
original research work carried out by him under my supervision.
This report has not been submitted either partly or fully to any other University or Institute for
award of any degree or diploma to best of my knowledge.
Date- ------------------------------
Place- (Mr. Vijay Kumar Sharma)
Asst. Professor
4. 4
PREFACE
Master of Business Administration is a course, which combines both theory and its applications
as its contents of study in the field of management. As part and parcel of this course, every
aspirant has to prepare Report on particular a particular topic .The purpose of this report is to get
the in depth knowledge regarding how an expert make investment decision.
One of the India renowned steel companies is Tata Steel, which is being researched by me from
the Investment perspective. By studying TATA STEEL from an investment perspective I would
be able to know whether it is lucrative or not to invest in TATA STEEL. My finding is totally
based on the fundamental and technical analysis.
The data for analysis had been collected through the Secondary sources like Annual report,
Newspaper, books.
5. 5
ACKNOWLEDGEMENT
“Acknowledgement is an art, one can write glib stanzas without meaning a word,
and on the other hand one can make a simple expression of gratitude”
We express our deep and sincere thanks to our guide Mr. Vijay Kumar Sharma. Initially he
helped me in selecting this project and then guided me throughout the project. He also helped me
by taking a lot of pain and sacrificing their personal valuable time in completion of this project
report.
I would like to thank my Liberian, who took adequate care & effort in searching books,
magazines, journals, etc., so that I could complete my project smoothly and well in stipulated
timeframe.
Last but not the least: I would like to cite my beloved parents, seniors and all my friends for their
and encouragement, support and blessings. These pages could scarcely have been written without
their help.
I express my gratitude to the Head and Faculty members of Center for Business Administration
(CUJ), who directly or indirectly helped me.
6. 6
EXECUTIVE SUMMERY
This report is an outcome of a study of investment analysis of Tata Steel.
This research has help in knowing that on which basis the investors take
decision to invest in the company
The research conducted by me is the combination of both Applied and
Descriptive Analysis. The investment analysis is based on the Fundamental
and Technical analysis. Under the fundament analysis, I have done the
economic, industrial and company analysis and in the technical analysis I
had analyze share data of Tata Steel for the last 20 days by using line graph
of opening and closing price, total volume, moving average line of the
closing price and candlestick chart.
From the detail study of the different factor, I come to the conclusion that it
is good for the investors to invest in Tata Steel.
7. 7
TABLE OF CONTENT
SL.
NO.
TOPIC PAGE NO.
DECLARATION FROM STUDENT 7
CERTIFICATE FROM CENTRE 7
PREFACE 7
ACKNOWLEDGEMENT 7
EXECUTIVE SUMMARY 7
1 INTRODUCTION 1
2 RESEARCH METHODOLOGY 2-4
2.1 RESEARCH OBJECTIVE 3
2.2 PURPOSE OF THE STUDY 3
2.3 SCOPE OF THE STUDY 3
2.4 TYPE OF THE RESEARCH 3
2.5 SOURCES OF DATA COLLECTION 4
2.6 LIMITATION 4
3 INVESTMENT ANALYSIS 5-14
3.1 FUNDAMENTAL ANALYSIS 7-31
3.1.a INTRODUCTION 7
3.1.b ECONOMY ANALYSIS 8-14
GDP GROWTH 9-10
BALACE OF PAYMENT 11-12
FOREX RATE 13-14
3.1.c INDUSTRYANALYSIS 15-21
GLOBAL STEEL INDUSTRY 15-16
8. 8
INDIAN STEEL INDUSTRY 17-21
3.1.d COMPANY ANALYSIS 22-31
INTRODUCTION 22-23
FINANCIAL ANALYSIS 24-31
3.2 TECHNICAL ANALYSIS 32-41
3.2.a BASIC PRINCIPLES OF TECHNICAL ANALYSIS 32-33
3.2.b OBJECTIVE OF THE TECHNICAL ANALYSIS 33
3.2.c PURPOSE OF TECHNICAL ANALYSIS 33
3.2.d CHARTS USED IN TECHNICAL ANALYSIS 34-36
3.2.e DATA ANALYSIS 37-41
4 FINDINGS & CONCLUSION 42
Bibliography 43
10. 10
INTRODUCTION
The project undertaken is on “A study on Investment analysis of TATA
STEEL”
It describes how analysts decide to invest in the firm, based on the study of both
fundament factors and the technical tools. It is the study of how an investment is
likely to perform and how suitable it is for a given investor. Investment analysis is
key to any sound portfolio-management strategy. An investment analysis is a look
back at previous investment decisions and the thought process of making the
investment decision.
Investment analysis is a journey into a wealth of knowledge that is an exciting mix
of the practical and the analytical. It looks to technique to evaluate and to theory to
explain.
Tata Steel Ltd. is India‟s largest integrated steel player in the private sector and the
world‟s seventh largest steel producer with an annual crude steel capacity of around
30 million tonnes per annum (MT pa). This is the reason why I had decided to do
the investment analysis on this company.
This project describes whether investing in Tata steel is lucrative or not, and if it is
lucrative then how much risk is involved in it.
12. 12
Research objective
Purpose of the study
Scope of the study
Data sources
Type Of Research
Limitations
13. 13
RESEARCH OBJECTIVE
To do Investment analysis of TATA STEEL
PURPOSE OF THE STUDY
To know how the economic environment effect the investment decision
To know how the market price of the share are fixed.
To know about the trend of number of volume traded.
To predict or forecast the future price movements.
To identify the pattern of fluctuation.
To know the financial strength of the company by the ratio analysis.
SCOPE OF THE STUDY
This project will be a learning device for the finance student.
Through this project I would study the various methods of the
fundamental and technical analysis.
The project would also be an effective tool for the investors who are
thinking to invest in Tata steel.
The ratio analysis conduct in the research will be useful for those who
want to analyse the financial statement of the company.
The economic analysis conducted in the research can also be used for
the fundamental analysis of other Indian firm. The following sources
have been sought for the preparation report:
Type of Research
Descriptive and analytical research is being undertaken so that to come to a
conclusion.
14. 14
SOURCES OF DATA COLLECTION
The entire data used in the report had been collected from the secondary
sources; as such there were no need of any data from the primary sources.
The following sources have been sought for the preparation report:
Tata steel annual report, its available database for the investors in its
official website.
The data collected for the technical analysis derived from the website-
www.moneycontrol.com.
The data collected for the economic analysis was mainly derived from
the government bodies‟ website, such as website of RBI, Ministry of
Statistics and Programme Implementation.
Also website of some international bodies has been extensively
searched for the purpose of collecting facts, such as World steel
Association.
Also, various text books on Security analysis and portfolio
management (like Punithavathy Pandian, S. Kevin), Financial
Management (M.Y.Khan, Prasanna Chandra and I.M.Pandey) were
consulted for the topic.
LIMITATION
Due to shortage of time it is not possible to cover all the factors and
details regarding the subject of study.
The last year financial data had not been analysed because the
company had not released its annual report, till yet.
16. 16
“Investment analysis is the study of financial securities for the purpose of
successful investing.”
In the stock Market parlance, Investment Analysis is done for making a decision
regarding the buy and sell of the shares. Under investment analysis, the analyst
basically does two types of analysis, i.e.-
1. Fundamental Analysis
This relates to an examination of the intrinsic worth of the
company, to find out whether the current market price is fair,
overpriced, or underpriced.
2. Technical analysis
Technical Analysis is a security analysis methodology for
forecasting the direction of prices through the study of past
market data, primarily price and volume
FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS
Economy Industry Company Traditional Modern
Analysis Analysis Analysis Analysis Analysis
19. 19
INTRODUCTION
Fundamental analysis means analyzing the fundamental factors relating to the economy, industry
and company, that is why it is also called as EIC ANALYSIS.
The objective of fundamental analysis is to evaluate the present and future earning capacity of a
share based on the economy, industry and company fundamentals and thereby assess the intrinsic
value of the share. The intrinsic value is the present value of the true economic worth of a share.
The investor can compare the intrinsic value of the share with the prevailing market price to
arrive at an investment decision.
For example-
If (market value of the share < intrinsic value of the share)
The investors will decide to buy the share, as it is underpriced.
If (market value of the share > intrinsic value of the share)
The investors will decide to sell the share, as it is overpriced (since the market price of the
share is expected to come down in the future.)
Why three tier analysis?
The logic of this three tier analysis is that the company performance depends not only on its own
efforts, but also on the industry and the economy in which it operates. A company
belongs to an industry and the industry operates within the economy.
Three tier analysis (FUNDAMENTAL ANALYSIS)
COMPANY
ANALYSIS
INDUSTRY
ANALYSIS
ECONOMY
ANALYSIS
20. 20
ECONOMY ANALYSIS
The performance of a company depends on the performance of the economy, as it impact the
companies in the numerous ways.
For example:-
If the economy is booming or tremendously growing nation income increasesdemand of the
goods increases (steel products) hence the industry and the companies in general tend to be
more prosperous
On the other hand,
If the economy is in recession or the growthnational income decreasesdemand of the goods
decreases (steel products)hence the industries and the company‟s growth, in general, will
dwindle.
Therefore, the analysis of the macro-economic environment is essential to understand the
behavior of the stock prices.
21. 21
1. GDP GROWTH
GDP indicates the rate of growth of the economy. It represents the
aggregate value of the final goods produced and serviced rendered in the
economy. The higher growth rate of the economy is more favorable to the
stock market
Financial year(FY) GDP Growth (at factor cost)
2003-04 7.97
2004-05 7.05
2005-06 9.48
2006-07 9.57
2007-08 9.32
2008-09 6.72
2009-10 8.59
2010-11 8.91
2011-12 6.69
2012-13 4.47
2013-14(estimated) 4.86
Source: RBI
0
2
4
6
8
10
12
GDP Growth (at factor cost)
22. 22
As visible from the above table, the Indian economy after reporting fairly
robust growth of over 9 per cent during 2005-08, moderated to a growth of
6.7 per cent in 2008-09 because of the global financial crisis. But soon after
the various monetary and fiscal stimulus (like pruning the interest rate) the
growth surge to 8.5% above in 2009-10 and 2010-11.
Although the fiscal and monetary stimulus led to the surge in economic
growth, but this doesn‟t continue for long time. Soon the economy started
dwindling because of the macroeconomic imbalance (stubborn inflation,
unsustainable fiscal situation). Currently, from the two financial years India‟s
economy is reeling with the sub-5% growth.
But from the new fiscal year the situation will be optimistic as it is visible
from the following happenings:-
Sensex is continuously accelerating and recently on 25th
march‟14 it
surged to a life time high of 22,702, because of the speculation of the
winning of capital friendly NaMo‟s government in the looming general
election. (PRESS TRUST OF INDIA, 2014)
Continuous endeavour of the Finance minister P.Chidambaram to leash
the fiscal deficit to 4.8% of GDP. (Bureau, 2014)
Clearance of the stalled projects.
Good estimation by the international bodies, like
International Monetary Fund said on its latest edition of the World
Economic Outlook released by the IMF(on 4th
april‟14)- “India‟s growth
is expected to recover from 4.4 per cent in 2013 to 5.4 per cent in
2014, supported by slightly stronger global growth, improving export
competitiveness and implementation of recently approved investment
projects.”
23. 23
2. BALANCE OF PAYMENT
The balance of payment is a systematic record of economic transactions of
the residents of a country with the rest of the world during a given period of
time.
The main purpose of keeping this record is to know the international
economic position of the country and to help the government to take the
decision.
„TEN MILLION
Source:- statistic year book’14, Ministry of Statistics and Programme
Implementation
-1200000
-1000000
-800000
-600000
-400000
-200000
0
TRADE BALANCE
BALANCE OF
PAYMENT(BOP)
EXPORT IMPORT TRADE
BALANCE
BALANCE OF
PAYMENT(BOP)
2003-04 303915 367301 -63386 -143993
2004-05 381785 533550 -151765 -115907
2005-06 465748 695412 -229664 -65896
2006-07 582871 862833 -279962 -163634
2007-08 668008 1035672 -367664 -369689
2008-09 857900 1405400 -547500 -97100
2009-10 863300 1423200 -559900 -64200
2010-11 1165700 1746100 -580500 -59500
2011-12 1482500 2394600 -912100 -68500
2012-13 1667700 2732100 -1064500 -20700
24. 24
As visible from the above table and graph, India‟s trade balance is
continuously eroding but on the other hand the overall balance of payment is
moving towards the surplus, mainly because surplus in the capital account.
The main reason for the eroding trade balance are-
heavy import of oil, coal, gold
The continuous rise in global crude oil prices due to the some factors
like Middle East political economy and recent Arab spring episodes.
reducing iron ore export earning
India exported 117 MT of iron ore in 2009-10 but soon the figure
show a steep decline to 18 MT in 2012-13. Now India is expected to
be a net importer of iron ore.
25. 25
3. FOREX RATE
The term “FOREX” means the foreign currency. Therefore, the FOREX rate means
the value of the domestic currency with the foreign currencies.
FOREX rate of INR w.r.t. USD for last 10 year
(FOREX RATE, 2014)
Source:- RBI
From 2003-04 to 2012-13, the INR depreciated (w.r.t USD) but in very less
amount. But the year 2013-14 was very volatile, INR depreciated to all time low of
around 68.8 during august‟13, due to various reason, mainly the quantitative
easing by Fed reserve (because of this there chunk of money were withdrawn by
(FOREX RATE, 2014) FOREX RATE W.R.T.
US Dollar
2003-04 45.952
2004-05 44.932
2005-06 44.273
2006-07 45.285
2007-08 40.241
2008-09 45.917
2009-10 47.417
2010-11 45.577
2011-12 47.923
2012-13 54.409
26. 26
FIIs, which led to the decrease in the supply of USD). But soon after the august the
FOREX rate started dwindling because of the various supply-side and demand side
(hiking the import duties on the gold import) initiative and from the last 1 month
the INR is continuously appreciating because of the huge pumping of funds (which
leads to the increase in the supply of USD) by FIIs into the Indian Capital Market,
mainly because of the speculation of the stable government after the general
election.
FOREX rate of INR w.r.t. USD for last 6 month
source: Ministry of Statistics and Programme Implementation
DATE FOREX RATE W.R.T. USD
29-07-13 59.297
28-08-13 68.3611
30-Sep 62.777
29-10-13 61.463
29-11-13 62.34
30-12-13 62.002
29-01-14 62.201
28-02-14 62.072
28-03-14 60.10
27. 27
INDUSTRY ANALYSIS
An industry is a group of firm hat have similar technological of production and produce similar
products .each company can be characterized as belonging to an industry.
The performance of companies would, therefore, be influenced by the fortunes of the industry to
which it belongs for this reason an analyst has to undertake an industry analysis so as to study the
fundamental factors affecting the performance of the industry.
1. Global Steel Industry:
While global industrial production in 2012 dropped to its lowest level since 2009,
global steel production reached a record high of 1.55 billion tonnes, up by 1.2% as
compared to 2011. The growth came mainly from Asia and North America while
production in the European Union and South America decreased in 2012 compared
to 2011. Global steelmakers continued to witness supply growth outpacing demand,
with capacity utilization rates remaining consistently below 80%. Subdued steel
prices and a slowdown in demand growth from China continued to weigh on the
global steel sector in the past year. Annual production for Asia was 1.01 billion
tonnes of crude steel in 2012, an increase of 2.6% as compared to 2011. China‟s
crude steel production in 2012 reached 716.5 million tonnes, an increase of 3.1%
on 2011, resulting in a hike in the country‟s share of world crude steel production
from 45.4% in 2011 to 46.3% in 2012. The EU meanwhile recorded a decrease of
4.7% compared to 2011, producing 169.4 million tonnes of crude steel in 2012.
Among specific countries, Germany produced 42.7 million tonnes of crude steel, a
decrease of 3.7% on 2011. Italy produced 27.2 million tonnes, a 5.2% decrease
over 2011. France‟s crude steel production in 2012 was 15.6 million tonnes, a
decrease of 1.1%. Spain produced 13.6 million tonnes of crude steel in 2012, a
12.1% decrease on 2011. In 2012, crude steel production in North America was
121.9 million tonnes, an increase of 2.5% on 2011 while that for South America
was 46.9 million tonnes, a decrease of 3.0% on 2011. The US produced 88.6
million tonnes of crude steel, 2.5% higher than 2011.
The past year proved to be a challenge for the steel industry with apparent steel
usage increasing at the slowest rate since 2009. The euro zone crisis persisted
throughout 2012 and macro-economic pressures in major economies contributed
significantly to the global slowdown. Lower industrial production and reduced
investment in large scale infrastructure projects resulted in a marked decrease in
the growth of steel demand from both the developed and emerging markets.
Apparent global steel usage in 2012 had grown by only 1.2%. A modest pick-up in
28. 28
global steel demand is expected in 2013. Global apparent steel usage is forecasted
to increase by 2.9% to 1.45 billion tonnes in 2013, following the slower-than-
expected growth in 2012. Demand is likely to improve faster in emerging markets.
Apparent steel use in China, the largest steel producer and consumer, is expected
to grow by 3.5% in 2013 to 668.8 million tonnes following a 1.9% increase in 2012.
There are trends of demand recovery in the property sector and the demand for
infrastructure has also been strong since June, 2012. However, underlying demand
in the EU is not expected to improve much in 2013 despite moderate restocking
seen in the beginning of the year. Overall, steel demand is expected to remain
weak due to the continuing economic crisis in the developed countries and the
structural shift in the Chinese economy.
MAJOR STEEL PRODUCER, 2012
Source: World Steel Association
China, 716.5
Japan, 107.2
United States,
88.6
India, 76.7
29. 29
2. Indian Steel Industry:
Evolution of Indian steel industry
summary of Indian steel industry, August 2013)
Steel Industry structure
Indian steel Industry can be divided into two main sectors Public sector and
Private sector. Further on the basis of routes of production, the Indian steel
industry can be divided into two types of producers.
Integrated producers
They are those that convert iron ore into steel. There are three major
integrated steel players in India, namely Steel Authority of India
Limited (SAIL), Tata Steel and RashtriyaI spat Nigam Limited (RINL).
Secondary producers
These are the mini steel plants (MSPs), which make steel by melting
scrap or sponge iron or a mixture of the two. Essar Steel, Ispat
Industries, and Lloyds steel are the largest producers of steel.
30. 30
Steel Production and Growth
India maintained its ranking as the 4th
largest steel producer in the World(after China, Japan and
USA) with a production of 77.6 million tonnes (estimated figures)of crude steel in 2012,
registering a growth rate of 5.6% over 2011 (source: WSA). The country has also been the
largest sponge iron producer in the world since 2002.
Finished steel demand in India, as per JPC estimates, softened as reflected in a 3.3%growth in
real consumption of finished steel during the financial year 2012-13 to 73.3 million tonnes. The
moderation in demand was mainly due to deteriorating global and domestic growth conditions.
Finished steel production for the financial year 2012-13 at77.6 million tonnes (JPC provisional
figures), shows a growth of 2.5% over the previous year.
The future outlook for the Indian steel industry is optimistic. The World Steel Association has
forecast a steel demand growth of 5.9% and 7% for 2013 and 2014respectively, which is higher
than the growth projected for developed countries and China.
31. 31
Challenges for Indian steel Industry
Compared to the global average per capita consumption of 150 kgs, India‟s per
capita consumption of steel is still a mere 39 kgs., perhaps. Even by Asian
standards India have a long way to go in the consumption of steel. Technologically,
the main hurdles before Indian steel industry are the cost of power and non
availability of metallurgical coke. (A brief report on Iron and See;industry in India,
March'2013)
Un-remunerative Prices
Stagnating demand, domestic oversupply, and falling prices in the last four years
have hit Indian steelmakers. Barring the sporadic rise in demand in the recent
months, it has suffered from unremunerative prices to the extent that companies
have been finding it difficult to maintain capital costs.
Endemic Deficiencies
These are inherent in the quality and availability of some of the essential raw
materials available in India, example, high ash content of indigenous coking coal
adversely affecting the productive efficiency of iron-making and is generally
imported. Advantage of high Fee content of indigenous ore is often neutralized by
high basic index. Besides, certain key ingredients of steel making, e.g., nickel,
Ferro-molybdenum is also unavailable indigenously.
Systemic Deficiencies
However, most of the weaknesses of the Indian steel industry can be classified as
systemic deficiencies. Some of these are described here.
High Cost of Capital
Steel is a capital intensive industry; steel companies in India are charged an
interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in
USA.
Low Labour Productivity
In India, the advantages of cheap labor gets offset by low labor productivity; e.g.,
at comparable capacities labour productivity of SAIL and TISCO is 75 t/man year
and 100 t/man year, for POSCO, Korea and NIPPON, Japan the values are 1345
t/man year and 980 t/man year.
High Cost of Basic Inputs and Services
High administered price of essential inputs like electricity puts Indian steel industry
at a disadvantage; about 45% of the input costs can be attributed to the
administered costs of coal, fuel and electricity, e.g., cost of electricity is 3 cents in
the USA as compared to 10 cents in India; and freight cost from Jamshedpur to
Mumbai is $50/ton compared to only $34 from Rotterdam to Mumbai. Added to this
are poor quality and ever increasing prices of coking and non-coking coal.
32. 32
Opportunities for Indian steel Industry
The biggest opportunity before Indian steel sector is that there is enormous scope
for increasing consumption of steel in almost all sectors in India.
Unexplored Rural Market
The Indian rural sector remains fairly unexposed to their multi-faceted use of steel.
The rural market was identified as a potential area of significant steel consumption
way back in the year 1976 itself. However, forceful steps were not taken to
penetrate this segment. Enhancing applications in rural areas assumes a much
greater significance now for increasing per capital consumption of steel. The usage
of steel in cost effective manner is possible in the area of housing, fencing,
structures and other possible applications where steel can substitute other
materials which not only could bring about advantages to users but is also desirable
for conservation of forest resources.
Other Sectors
Excellent potential exist for enhancing steel consumption in other sectors such as
automobiles, packaging, engineering industries, irrigation, and water supply in
India. New steel products developed to improve performance simplify
manufacturing/installation and reliability is needed to enhance steel consumption in
these sectors. Main objective here have to be improvement of quality for value
addition in use, requirement of less material by reducing the weight and thickness
and finally reduction in overall cost for the end user. Latest technology must be
adopted by Indian steel manufacturers for production of superior quality of steel for
these applications. For example, pre-coated sheets can be used in manufacture of
Appliances, furnishings, electric goods and public transport vehicles. Production and
supply of superior grades of steel in desired shapes and sizes will definitely increase
the steel consumption as this will reduce fabrication need; thereby reduce cost of
using steel.
Export Market Penetration
It is estimated that world steel consumption will double in next 25 years. Quality
improvement of Indian steel combined with its low cost advantages will definitely
help in substantial gain in export market.
Potential rise in per capita steel consumption
As per the report of the Working Group on Steel for the 12th Plan, there exist many
factors which carry the potential of raising the per capita steel consumption in the
country, currently estimated at 55 kg (provisional). These include among others, an
estimated infrastructure investment of nearly a trillion dollars, a projected growth
of manufacturing from current 8% to 11-12%, increase in urban population to 600
million by 2030 from the current level of 400 million, emergence of the rural
market for steel currently consuming around 10 kg per annum buoyed by projects
like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Awaas
Yojana among others.
Clearance to the stalled projects
33. 33
The Cabinet Committee on Investments (CCI) has approved the speedy execution
of 36 infrastructure projects entailing Investments of Rs 1,830 billion (US$ 29.28
billion) to boost investor confidence, according to Mr. P Chidambaram, Union
Minister for Finance, Government of India.
.
34. 34
COMPANY ANALYSIS(TATA STEEL)
INTRODUCTION
Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO) is an
Indian multinational steel-making company headquartered in Mumbai, Maharashtra,
India, and a subsidiary of the Tata Group. It was the 12th largest steel producing
company in the world in 2012, with an annual crude steel capacity of 23.8 million
tones, and the second largest private sector steel company in India (measured by
domestic production) with an annual capacity of 9.7 million tonnes after SAIL and
JSW Steel.
Tata Steel has manufacturing operations in 26 countries, including Australia,
China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and
employs around 80,500 people (Annual Report, 2012-13). Its largest plant is
located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel
maker Corus which was the largest international acquisition by an Indian company
till that date (Vaswani). It was ranked 471st in the 2013 Fortune Global 500
ranking of the world's biggest corporations. It was the seventh most valuable
Indian brand of 2013 as per Brand Finance (India's top 50 brands, 2013). On
February 12, 2012 Tata Steel completed 100 years of steel making in India
India’s Operations
Tata Steel founded India‟s first industrial city, now Jamshedpur, where it
established India‟s first integrated steel plant in 1907. The Jamshedpur Works
currently comprises of a 9.7 MT pa crude steel production facility and a variety of
finishing mills. Two new Greenfield steel projects are planned in the states of
Jharkhand and Chhattisgarh. Kalinganagar project is underway; it is set to augment
production capacity by 3 MT pa in the first phase. Mines and collieries in India give
the Company a distinct advantage in raw material sourcing. Iron Ore mines are
located at Noamundi(Jharkhand) and Joda(Odisha) both located within a distance of
150 km from Jamshedpur. The Company‟s captive coal mines are located at Jharia
and West Bokaro (Jharkhand).
Expansion plans
Tata Steel has set a target of achieving an annual production capacity of 100 million
tons by 2015; it is planning for capacity expansion to be balanced roughly 50:50
between Greenfield developments and acquisitions. Overseas acquisitions have
already added an additional 21.4 million tonnes of capacity, including Corus (18.2
million tonnes), NatSteel (2 million tonnes) and Millennium Steel (1.2 million
tonnes). Tata plans to add another 29 million tonnes of capacity through
acquisitions.
35. 35
Major Greenfield steel plant expansion projects planned by Tata Steel
include:
a 6 million tonne per annum capacity plant in Kalinganagar, Odisha,
India;
an expansion of the capacity of its plant in Jharkhand, India from 6.8
to 10 million tonnes per annum;
a 5 million tonne per annum capacity plant in Chhattisgarh, India (Tata
Steel signed a memorandum of understanding with the Chhattisgarh
government in 2005; the plant is facing strong protest from tribal
people);
a 3 million tonne per annum capacity plant in Iran;
a 2.4 million tonne per annum capacity plant in Bangladesh;
a 10.5 million tonne per annum capacity plant in Vietnam (feasibility
studies are underway); and
A 6 million tonne per annum capacity plant in Haveri, Karnataka.
37. 37
% % % % % % % % % % %
P/E Ratio 4.9 12.2 6.4 8.5 6.9 10.4 3.0 10.5 8.2 6.9 6.2
INTERPRETATION
The above chart shows that from the last 2 years the EBITDA/Turnover had little bit dwindled.
In the year 2012-13 the EBITDA was 30.60% of the revenue, this is because of the various
reason such as hike in the Employee benefits expense
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
FY 02-03FY 03-04FY 04-05FY 05-06FY 06-07FY 07-08FY 08-09FY 09-10FY 10-11FY 11-12FY 12-13
EBITDA/Turnover
EBITDA/Turnover
38. 38
INTERPRETATION
The above chart shows the tremendous slump in PBT/Turnover, this is because of the decrease in
EBITDA, reduction in disinvestment of non-current assets, etc.
INTERPRETATION
In the past 10 year, ROCE was at the peak in the FY 2004-05, i.e. 62%, but with
time the ratio slumped tremendously and in the financial year 2012-13it was 11.9%
because of various reasons such as cost inflation.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
PBT/Turnover
PBT/Turnover
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
Return on Avg. Capital Employed
Return on Avg. Capital Employed
39. 39
INTERPRETATION
From the diagram it is clear that the company have good asset turnover ratio,
overall. Albeit, the ratio had decrease but still it is good (in the FY 2012-13 the
revenue was 77.8% of the total assets of the company).
INTERPRETATION
The company has a very sturdy inventory management system.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
Asset Turnover
Asset Turnover
0
10
20
30
40
50
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
Inventory Turnover (in Days)
Inventory Turnover (in Days)
40. 40
INTERPRETATION
The company had shown a huge improvement in its debtor‟s turnover period, this
reveals the robust credit rating of the company in the market.
INTERPRETATION
Tata steel‟s debt-equity ratio had increased from FY 2011-12 to FY 2012-13, and
now it have the optimum level of tax benefits and risk.
0
5
10
15
20
25
30
35
40
45
50
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
Debtors Turnover (in Days)
Debtors Turnover (in Days)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
FY 02-03FY 03-04FY 04-05FY 05-06FY 06-07FY 07-08FY 08-09FY 09-10FY 10-11FY 11-12FY 12-13
Net Debt to Equity
Net Debt to Equity
41. 41
INTERPRETATION
The chart reveals the short-term solvency problem of the company. In the financial
year 2012-13 the company current assets were 90% of the current liabilities.
0.0
0.5
1.0
1.5
2.0
2.5
FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13
Current Ratio
Current Ratio
0.0
10.0
20.0
30.0
40.0
50.0
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
Interest Cover Ratio
Interest Cover Ratio
42. 42
INTERPRETATION
The debt servicing ability of the firm had eroded right from the global financial
crises, but still the ratio is quite favorable, as in the last financial year the EBIT was
around 6.5 times of the interest.
INTERPRETATION
The company‟s dividend payout ratio show the decreasing trend, thus now the
company is retaining more amount of profit which belongs to equity shareholder.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
Dividend Payout
Dividend Payout
43. 43
INTERPRETATION:
The company profit-earnings ratio of the company had also decreased, thus the
investors are now getting more returns.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY 02-
03
FY 03-
04
FY 04-
05
FY 05-
06
FY 06-
07
FY 07-
08
FY 08-
09
FY 09-
10
FY 10-
11
FY 11-
12
FY 12-
13
P/E Ratio
P/E Ratio
45. 45
Technical Analysis
Technical Analysis is a security analysis methodology for forecasting the direction of
prices through the study of past market data, primarily price and volume.
This is a process of identifying trend reversals at an early stage to formulate the
buying and selling strategies. Using several indicators, investors analyses the
relationship between price-volume and supply-demand for the overall market, as
well as for the individual stock. During an upswing, the number of shares traded is
greater than before, and in a downswing, the number of shares traded dwindles.
The rationale behind technical analysis is that share price behavior repeats itself
over time and analysts attempts to derive methods to predict this repetition. A
technical analyst looks at the past data so that to patterns. He then looks at
currents price data to see if any of the established patterns are applicable and, if
so, extrapolations1
can be made to predict the future price movements.
The basic premise of technical analysis is that prices move in trends or waves which
may be upward or downward. It is believed that the present trend are influenced by
the past trend and the projection of future trends is possible by an analysis of past
price trends. A technical analyst, therefore, analyses the price and volume
movements of individual‟s securities as well as the market index. Thus, Technical
analysis is really a study of past or historical price and volume movements so as to
predict the future stock price behavior.
ASSUMPTIONS:-
1. The market always moves in a trend. Expect for minor deviations, the stock
prices move in a trends. The price may create definite patterns too. The
trend may be increasing or decreasing.
2. Interactions of supply and demand determine the market value of scrip. The
market discounts everything. The price of the security quoted represents the
hopes, fear and inside information of the market players.
3. Technical analysis believes that past prices predict the future.
BASIC PRINCIPLES OF TECHNICAL ANALYSIS:-
The basic principles on which technical analysis is based are as follows:
1
Calculation of the value of a function outside the range of known value.
46. 46
1. The market value of a security is related to demand and supply factors of a
security.
2. There are both rational and irrational factors which surrounds the supply and
demand factors of a security.
3. Security prices behave in a manner that their movement is continuous in a
particular direction for some length of time.
4. The shifts in demand and supply can be detected through charts prepared
specially to show market action.
5. Patterns which are projected by charts records price movements and these
recorded patterns are used by analysts to make forecasts about the
movement of prices in future.
OBJECTIVE OF THE TECHNICAL ANALYSIS:-
To understand and identify the Overbought and Oversold price levels as derived
from using all the historical data available.
To identify reversal patterns that might occur in overbought or oversold regions, so
as to profit from contra trend trades.
To maximize the gains from all sorts of trading activities, and minimize risk and
losses arising from such activities.
To identify the price levels where chances of a profitable trade are less, and
recognize 'price-patterns' in and at such levels if and when they occur to avoid such
trades.
PURPOSE OF TECHNICAL ANALYSIS
It identifies a pattern of fluctuations
It enables trader to make sense of the short term fluctuation
Short term experiences and it help in predicting the future
Movements of stock prices.
It enables effective decision making.
Since most traders buy and sells stocks on the same day, they need to
decide quickly on the purchase and sale price, so technical analysis
help them in deciding.
47. 47
Charts Used in Technical Analysis
Charts are a valuable and easiest of tools used in technical analysis. The graphical
presentation of data helps the investor to find out the trend of prices without any
difficulty. Charts also have a following uses:
Help to spot current trends for buying and selling
Indicate the probable future action of the market by projection
Show historical movements
Indicate the key areas of support and resistance
A chart represents of the demand and supply of a stock or commodity. The
horizontal axis represents time, with the price drawn as a line connecting
consecutive closing values. More sophisticated charts will show more detail; bar
charts also include the range from high to low, candlestick charts include the open
price along with a color and fill which reflects change relative to the previous close.
The basic data on which the chart is drawn are
1. Date
2. Price Band (Open, High, Low & Close)
3. Volume
The different charts used in technical analysis are:
Line Chart
Bar chart
Candlestick Chart
Line chart
The most basic of the three charts is the line chart because it represents only the
closing prices over a set period of time. The line is formed by connecting the closing
prices over the time frame. Line charts do not provide visual information of the
trading range for the individual points such as the high, low and opening prices.
However, the closing price is often considered to be the most important price in
stock data compared to the high and low for the day and this is why it is the only
value used in line charts.
Bar Chart
The bar chart expands on the line chart by adding several more key pieces of
information to each data point. The chart is made up of a series of vertical lines
48. 48
that represent each data point. This vertical line represents the high and low for the
trading period, along with the closing price. The close and open are represented on
the vertical line by a horizontal dash. The opening price on a bar chart is illustrated
by the dash that is located on the left side of the vertical bar. Conversely, the close
is represented by the dash on the right. Generally, if the left dash (open) is lower
than the right dash (close) then the bar will be shaded black, representing an up
period for the stock, which means it has gained value. A bar that is colored red
signals that the stock has gone down in value over that period. When this is the
case, the dash on the right (close) is lower than the dash on the left (open).
Structure of a Bar Chart
49. 49
Candlestick Chart
Another type of chart used in technical analysis is the candlestick chart, so called
because the main component of the chart representing prices looks like a
candlestick, with a thick „body‟ and usually a line extending above and below it,
called the upper shadow and lower shadow, respectively. The top of the upper
shadow represents the high price, while
The bottom of the lower shadow represents the low price. Patterns are formed both
by the body and the shadows. Candlestick patterns are most useful over short
periods of time, and mostly have significance at the top of an uptrend or the
bottom of a downtrend, when the patterns most often signify a reversal of the
trend.
While the candlestick chart shows basically the same information as the bar chart,
certain patterns are more apparent in the candlestick chart. The candlestick chart
emphasizes opening and closing prices. The top and bottom of the real body
represents the opening and closing prices. Whether the top represents the opening
or closing price depends on the color of the real body—if it is white/ blue/green,
then the top represents the close; black / red or some other dark color, indicates
that the top was the opening price. The length of the real body shows the difference
between the opening and closing prices. Obviously, white/green/blue real bodies
indicate bullishness, while black/red real bodies indicate bearishness, and their
pattern is easily observable in a candlestick chart.
Structure of a Candlestick Chart
51. 51
REPRESENTATION OF CLOSING PRICE AND MOVING AVERAGE LINE GRAPH
OF CLOSING PRICE:
INTERPRETATION
The closing Price set through Moving average indicates upward trend line fitted on closing price
of the share during the study period, so from this It conclude that it will lucrative to invest in
Tata Steel and also it evolves very less risk.
300
320
340
360
380
400
420
Close Price
moving average
52. 52
REPRESENTATION OF OPENING AND CLOSING PRICE ON LINE GRAPH:
INTERPRETATION
The movement of opening and closing price indicates a slight increase during the study period
and the situation is good from the investor‟s point of view, as the overall market capitalization of
Tata steel is increasing during the study period.
0
50
100
150
200
250
300
350
400
450
opening Price
Closing Price
53. 53
CANDLESTICK CHART
:
INTERPRETATION
Its shows stock has higher opening price at maximum numbers of days compare to
closing price on the same day of the study period. It represents not a clear picture
of stock price at which the investors will decide to invest (since neither the black
body nor the white bodies show any trend), however the overall analysis of stock
price tells that it is favorable for the investors to invest at closing price of the stock,
i.e. on the end of the day
0
50
100
150
200
250
300
350
400
450
07-Mar-14
08-Mar-14
09-Mar-14
10-Mar-14
11-Mar-14
12-Mar-14
13-Mar-14
14-Mar-14
15-Mar-14
16-Mar-14
17-Mar-14
18-Mar-14
19-Mar-14
20-Mar-14
21-Mar-14
22-Mar-14
23-Mar-14
24-Mar-14
25-Mar-14
26-Mar-14
27-Mar-14
28-Mar-14
29-Mar-14
30-Mar-14
31-Mar-14
01-Apr-14
02-Apr-14
03-Apr-14
04-Apr-14
Open Price
High Price
Low Price
Close Price
54. 54
REPRESENTATION OF LINE CHART-TOTAL VOLUME W.R.T. DAYS
INTERPRETATION
The above chart shows the huge volatility in demand /volume sales of the share as
a result of which the price the price is also little bit volatile, as it is visible from the
line chart of opening & closing price w.r.t. days
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Total volume
Total volume
56. 56
FINDINGS & CONCLUSION
Future of the India‟s economic growth seems to be more optimistic/
sanguine.
With the inflation tightening policies, it seems that soon India will be able to
leash the stubborn inflation.
India‟s BOP is also improving, thus providing favourable environment to the
company.
The industry also seems to grow as recently the Cabinet Committee on
Investments (CCI) has approved the speedy execution of 36 infrastructure
projects entailing Investments of Rs 1,830 billion.
The ratio analysis also indicates the management and overall efficacy,
financial strengths also indicates that the company will be in better position
in the looming future.
From the technical analysis, I find that it will be lucrative to invest in Tata
Steel and also it evolves very less risk.
Also the overall analysis of the stock price by the candlestick chart reveals
that for the sake of more profits the investors should invest at the closing
price .
57. 57
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(2013, August 19). India's top 50 brands .
(March'2013). A brief report on Iron and Steel;industry in India. New Delhi: Corporate Catalyst India(CCI).
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axis bank. (n.d.). Retrieved april 12, 2014, from www.encyclopedia.com: http://www.encyclopedia.com
Basics Of Technical Analysis (2010). [Motion Picture].
Bureau, E. (2014, February 19). Brokerages, Rating Firms Doubt FM's Budget Math. p. 1.
(2014). FOREX RATE. RBI..
(2014). Overall Balance Of Payment. In Statistic Year Book. Ministry of Statistics and programme
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Pandian, P. (2013). Security Analysis and Portfolio Management. New Delhi: Vikas Publishing House.
PRESS TRUST OF INDIA. (2014, April 10). Sensex Scales Fresh Peak. p. 1.
S.Kevin. (2011). Security Analysis and Portfolio Management. New Delhi: PHI.
(August 2013). summary of Indian steel industry. India Brand Equity Foundation.
Vaswani, K. (n.d.). Indian firms move to world stage.
www.investopedia.com/technicalanalysis. (2014, april 5). Retrieved april 5, 2014, from
www.investopedia.com.
www.moneycontrol.com/market/shareprice. (2014). Retrieved april 10, 2014, from
www.moneycontrol.com.